Five budget issues to track
From middle class largesse to deficit dodging
Here are the top five issues/subjects/spins to track when Finance Minister Bill Morneau produces the Liberals’ second budget in the House of Commons on Wednesday.
Middle class: The text of Morneau’s 2016 budget last March contained 111 references to those two words, which were also blazed across the document’s title page: Growing the Middle Class. “The government’s plan fosters an economy that works for the middle class and those working hard to join it.” In this obsession, the Trudeau Liberals appear to be tracking ultra- capitalist Ayn Rand, who wrote: “A nation’s productive — and moral, and intellectual — top is the middle class. It is a broad reservoir of energy, it is a country’s motor and lifeblood, which feeds the rest. The common denominator of its members, on their various levels of ability, is: independence. The upper classes are merely a nation’s past; the middle class is its future.”
It’s doubtful that Rand would be all that enthusiastic about Ottawa’s plan to boost middle- class fortunes by showering billions in federal money on thousands of upper- class business and political rent seekers. As a champion of the middle class, maybe Morneau could take up Rand as a policy guide rather than the redistributionists and panderers he now consults.
What we need is economic policy that allows the middle class to get into the upper classes, objectives that are unlikely to be met by federal and provincial tax regimes that start punishing people with incomes above $100,000 with 45- and 50-per-cent tax rates.
Speaking of the upper classes …
Innovation: The key to understanding the clamour for more cash to flow from government to innovation ( 72 mentions in the 2016 budget) is in the jargon. In summary, as gleaned from government documents, the Innovation Agenda aims to, ahem … strengthen innovation networks and clusters by getting stakeholders to work together and collaborate within supply chains to fill information gaps and establish linkages to catalyze private sector dynamism and scale up to generate greater value from public investments and enable the pursuit of ambitious initiatives that bring a critical mass of stakeholders together and connect their clean and green ideas to the marketplace.
Whether the billions spent on innovation and skills development will produce much actual innovation is unknown, and may never be known. A recent report from the Institute for Fiscal Studies and Democracy ( IFSD) at the University of Ottawa found that the vast majority of current federal spending on innovation and skills, about $23 billion via 147 different programs, sails out of Ottawa into the great unknown without assessment or evaluation requirements.
In all, 21 tax expenditure items worth $8 billion had no public assessment of effectiveness, including $3 billion in tax credits for corporate science research. Same for Industry Canada’s $600-million outlays to “support growing companies and accelerating green growth.” Of the direct grants, including about $600 million to assorted agriculture and agri- food innovation/skills programs, only a small number had meaningful performance metrics. The point is that maybe the existing $23 billion should be reviewed first before launching new billion-dollar programs based on jargon- filled notions of how to create an innovative economy.
Infrastructure: Ottawa says Canada has an infrastructure gap. But do we? And how big is it? According to Dominic
Barton’s Advisory Council on Economic Growth, the size of the infrastructure gap is somewhere between $150 billion and $1 trillion.
In the words of the IFSD in another report, that monster gap between the two infrastructure numbers indicates the growth council “has no idea what the size of the infrastructure gap is in Canada.”
The IFSD, which is headed by Kevin Page, former chief of the Parliamentary Budget Office, says the gap is unknown in part because:
“Canadian governments do not have a good grasp of a) what the existing level of public assets is, b) what the condition of those assets is, c) where those assets are in their life cycle, and d) what Canada’s future infrastructure needs are going to be. Indeed, according to a report by the McKinsey Global Institute published in June 2016, Canada had sufficient infrastructure funding in the pipe to meet its infrastructure needs through 2030. This suggests all of the extra funds being shovelled out the door may be for naught, although there remains too large a data gap to reach a definitive conclusion.”
Conclusion: Whatever the infrastructure numbers in the budget, or the scale of the proposed investment bank, the program is based on politics and not economics.
Investments: That’s a popular word in government circles, worth 282 mentions in Budget 2016. The definition of investment, in government usage, is simple: All money out is an investment, even when it is nothing more than spending. In reality, $ 339 million to subsidize summer jobs for youth or $ 500 million to support childcare is not an investment. Neither is $675 million in cash transfers to the CBC. By that standard, one could describe buying food at a supermarket as an individual’s investment in staying alive. Government expenses are not investments. They are political redistributions of money from one taxpayer to another.
Deficits: Here the Liberals are linguistically parsimonious about their fiscal profligacy. The word deficit appears only four times in Budget 2016, even though the budget plan called for a parade of red-ink numbers that would boost the national debt to $ 732 billion, an increase of 18 per cent over five years. Forecasters believe the new deficit numbers in this week’s budget will show higher deficits leading to debt of $ 760 billion, up 23 per cent, by 2022. The Liberal election platform said the debt- to-GDP ratio would be lowered to 27 per cent, or about $660 billion. Conclusion: Do not bet real money on any budget numbers.